Optus’ new chief executive Allen Lew has unveiled an ambitious transformation of the nation’s No 2 telco to turn its big, dumb pipes of internet connectivity into an analytics and smarts machine capable of rivalling the world’s best content aggregators.
Speaking to The Weekend Australian as part of a wide-ranging interview about his strategy to reignite the fight against Telstra’s dominance of the $40 billion-a-year telecom sector, Mr Lew said Optus needed to temper its aspirations of catching the telco giant on network quality and instead to focus on areas where it could clearly dominate.
“We want to compete on one thing. We have built up customer advocacy and customer experience and now we want to move that to innovation, to make a difference in people’s lives,” he said.
“The best network has already been taken and the price proposition is not something that we really want to go toward. So innovation, which includes engaging entertainment and enhancing people’s lives, is a position that no one has taken.”
The first step in Mr Lew’s reinvigorated content play was unveiled this week when it was revealed Optus had signed an exclusive bundling deal with global streaming juggernaut Netflix to offer customers a six-month free trial of the service.
Mr Lew said that move was the first of many deals Optus was looking to execute with local and international media companies in a bid to expand its portfolio of sports, movies and television content offerings to lure consumers to its mobile and fixed-line services.
The plan to sign content deals that can be offered across its partnerships with pay-TV platform Fetch TV and through subscription services like Netflix will allow Optus to track viewing behaviours as well as bridge the generational gap between older and younger Australians.
Mr Lew said this would not only allow Optus to figure out what content people were watching but also allow the telco to curate content on the fly to consumers’ device of choice, whether it be over a mobile or fixed-line broadband connections.
“We are already developing the smarts and the internal analytics to do this. But before we can, we need to understand people’s content habits. That’s the bigger game for us,” he said.
“Where we will differentiate is to be able to make ourselves the distribution platform of choice so we become the partner of choice for all these content providers.
“As I start to move beyond being a pure telco and to a multimedia company I then am able to position myself in the minds of people not just as a place where you go to get connected to the internet but as a place where you go to discover interesting content and product and services that fit my lifestyle.”
Mr Lew’s strategy to reinvent Optus as a multimedia and connectivity hub is centred on one of the biggest problems facing telcos around the world.
As consumers continue to flock to smartphones - with their fast computer processing power, access to hundreds of thousands of applications and photographic prowess - telcos around the world are experiencing exponential growth in the data that flows through their mobile networks.
But there’s a catch. The telcos aren’t making profits commensurate with that data consumption.
The problem is that while growth in network traffic is exploding, margins and earnings at the big telcos are not travelling on the same trajectory.
That’s because while telcos spend billions of dollars constructing the mobile and fixed-line networks that allow people to make calls, send texts and access the web, the so called over-the-top operators (the Facebooks and Googles of the world) that offer free services are eating into the revenues mobile carriers were hoping to catch.
“If you think about the longer-term, we as telcos are losing traction with people and becoming a utility. Are people really more engaged with Facebook and Snapchat and Instagram? That’s the bigger problem we are facing as a telco,” Mr Lew said.
“That’s why I think our strategy to innovate and get that shiny brand back for telcos is very important.
“We will be a guinea pig in some of these things. But I’d much rather be a guinea pig than have to rearrange deck chairs on the Titanic.”
Mr Lew - who turns 60 in May - took the reins at Optus in October after a successful stint leading Singtel’s Digital Life, a self-described “growth engine” that has two principal goals: to increase revenue and bottom line, and to develop new services that engage more with its traditional carriage customers.
Before that role he led SingTel’s Singaporean operations and before that the mobile division of Optus in the early 2000s.
While Mr Lew is a highly regarded and respected operator in the ever-evolving global telecoms game, his ambitious plan to reinvent Optus belies the fraught position that the telco has found itself in the local market, where the industry behemoth Telstra has gobbled up customers, revenue and talent at unprecedented rates.
There have been bright spots on Optus’s balance sheet for its mobile business - profitability and margins have increased while the cost to acquire has fallen - but the telco has given up valuable market share.
Today Telstra commands more than 50 per cent of the mobile market with more than 16 million subscribers compared to the 9.4 million at Optus and 5 million at Vodafone.
Its fixed-line business has fared even worse, with the number of subscribers falling below the million mark as rivals iiNet and TPG snap up deserting customers.
Mr Lew, however, is acutely aware of the challenges facing Optus’s core business and is determined to turn the needle on customer acquisitions.
“The reason why our ARPUs (average revenue per user) haven’t been growing as strong as our competitors is primarily because our regional coverage and metro fringe coverage is frankly not as good as theirs,” he said.
“That is our weak spot and that is something that we will address.”
Optus is spending about $1.2 billion on its fixed-line and mobile networks this financial year but is looking for an increase to improve the telco’s mobile network outside of metropolitan areas in the year ahead.
Sources close to Optus’s parent Singtel say Mr Lew is looking for a substantial increase in capital expenditure for its next financial year, which begins April 1. Given the high regard with which he is held by Singtel’s board, it’s likely he will get want he asks for.
“It’s all about investing in the quality and depth of our network,” he said.
“Next step for us this year and next is to improve the quality and the depth of the network so people can get 4G in more places. We need to make sure we invest in our mobile network and make sure it improves coverage as well as quality and depth.
“But if we want Singtel to make the investment that we need in mobile then we need to show them that we are not just getting customers for the sake of numbers, but that we are growing profit and revenue.”
Reinvigorating Optus’s stagnant fixed-line broadband business will also be a priority under Mr Lew.